Where'd You Get That Freight?
Bad brokers and unsophisticated shippers can
contribute to the problems of small fleets.
Patricia Smith
Senior Editor
High fuel prices are often the "tip-over" factor when small trucking companies get into trouble, but the root problem usually boils down to utilization and where they're getting their freight, said Jay Thompson, president and general manager of Transportation Business Associates, a Denver-based marketing consulting firm that specializes in reaching owner-operators and small fleets.
Small carriers operating under their own authority tend to deal with smaller shippers or inexperienced brokers who don't understand trucking or its unique problems and needs. In both cases, they often have an "unrealistic assessment of the current environment when it comes to rating freight," he explained. "When they get a low price, that price ends up being the norm."
That doesn't mean truckers should routinely reject every rate that falls below their target profit level. It does mean that the impetus is on the owner-operator or small fleet operator to know something about the market and even more about what they need to make a profit – or sometimes what they're willing to leave on the table rather than lose miles waiting for a better load.
Most of the large carriers have become adept at imposing fuel surcharges, but small carriers often struggle. "A lot of times," Thompson said, "the carrier or owner-operator doesn't understand how to calculate fuel surcharges, so they end up pulling a number out of thin air. Some don't even ask for a surcharge, or they don't question a broker or shipper when told 'it's in the rate.' " (A formula and instructions for calculating fuel surcharges is available in the "basic planning" section of www.tbabz.com.)
Small trucking companies that operate successfully under their own authority are usually running one direction with what Thompson calls "their own freight." In other words, they're hauling for an established customer or they're serving a niche market where they're adequately compensated for good service or specialized expertise.
Brokers are fine for the backhauls, but problems often arise when truckers rely on brokers for the majority of their freight. "There are a lot of very good brokers out there, but it's the 80/20 rule where 20 percent of the brokers are creating most of the problems," he said. "They're only motivated to book freight, or they don't understand the operational or business questions."
Another part of the game is for a broker to publish available freight, but when the broker is called it just so happens it was just booked – leading to "the freight frenzy." The next step is to ask the fleet or operator for a callback number, but the call back rarely materializes. Thompson said many believe that this is in part due to the ease of entry (Internet, etc.) and low cost in becoming a broker.
Good brokers, he said, take more of a logistics approach rather than working on a load-by-load basis. They consider the overall freight mix in their portfolios and, like truckers, are willing to take a little less on one load because they know they can make it up on another. However, he cautioned truckers to be aware of those who hang out a logistics shingle to sound more sophisticated, but are still nothing more than an old-fashioned broker.
Under federal regulations (49 CFR Part 371.3), brokers must keep an accounting of every transaction and must make the information available to all parties involved in that transaction. Thompson recommended that truckers request full disclosure of the information for every load.
Truckers should understand that brokers need to make something for their efforts. On average, fees range from 8-13 percent, which Thompson said is fair when you consider sales, load planning, dispatch and other services provided. They should also keep in mind that brokers almost always quote a rate that is below what they're actually prepared to pay. If it's too low, the best strategy is to counter with a number that's fair for the circumstances and the load. If the broker continues to push a too-low rate, the best advice for the long run is usually "walk away."
"Shippers are looking for consistent capacity," Thompson explained. "If Broker A gives the shipper a lower rate than Broker B but can't get trucks to haul at that rate, the shipper is eventually going to end up with Broker B."
Owner-operators and small trucking companies that don't have repeat customers or haven't found a profitable niche may do well to consider running for a larger carrier or logistics company.
Schneider National figures that about 36 percent of the driver capacity in the truckload market is operations with less than 75 trucks and "the vast, vast majority of those are under 25 trucks," said Mark Rourke, general manager of transportation management. Therefore, it's a valuable resource that carriers, brokers and logistics companies can't afford to ignore. Schneider's broker operation uses about 2,500 independent owner-operators and carriers a month, and maintains a pool of about 10,000. Its third party logistics operation uses about twice that number.
"We're finding that the 3PL is more attractive because we can aggregate multiple shipper contracts within one company, so sales and administrative resources can be much more effective," he noted. "There's a big difference between someone representing 20 shippers and someone representing one."
Working with a larger operation usually means more bargaining clout for small fleets. Benefits also include sales, marketing, administrative services and, often, group purchasing programs. Rourke said they're continuously looking at other ways to ease small company burdens, such as quick pay programs that improve cash flow. "Hopefully, that makes them more loyal to us in the long run," he says. "If you don't treat them fairly, what incentive do they have to do business with us?"
"I believe there is an abundance of good independent contractors waiting to be tapped, but the trust is not there," Thompson said. TBA has a workshop program for brokers, logistics providers and both large and small fleets where they offer owner-operators and fleet contractors help with basic planning and profitability.
"We've found that one of the biggest problems in contractor retention is what we call 'the love factor,'" he explained. "The contractors don't feel they're appreciated, that anyone is paying attention to them and their needs. Taking the time to route them in for a workshop, and making the effort to bring in someone to discuss their business with them is the kind of attention they seek."
Outlook 2006 continued...
